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February 24, 2010

The Great Wall of Worry

You know what's interesting is that despite all the fuss this week over the dollar's reluctance to submit itself to the collective will of gold bugs, the DX has only recaptured about half of Friday's range. Despite all the fuss over how gold isn't shooting to the moon, the yellow metal has only coughed up about $25 of a $75 gain off the February low. Despite all the fuss over how stocks are about to swoon into an impulsive bear wave, the SPX has given up even less of its gains than gold, and has only seen one down day of a percent or more in the 12 days since the low.

S&P 500 weekly chart intermediate cycle

Talk about climbing a wall of worry.

Let me ask: if the markets are about to suffer another bout with deflationary forces, why is oil less than $3 off its 52-week high? Why is copper showing strong relative strength to to the CRB? If deflation were about to take hold, industrial commodities should be leading the way down. Sure, the miners are behaving poorly, but folks, they more than tripled out of the crash. Give them a breather!

Gold bug index reversal pattern

If the markets are about to suffer another bout with deflation, why did retail shares just close at a new 52-week high?

Retail stocks new high

And real estate?

real estate stock breakout pattern

Early last year, the 'ol buck was enjoying a move out of a December low, a strong rally that baffled pundits who were proclaiming its death due to all the felonious money printing. By the top of the rally, dollar optimism was spilling off nearly every financial media page. After all, the DX had just topped the crash panic level. It was a breakout! But under their very noses, the DX was sitting smack dab in the middle of a daily cycle that was due to swing. After forming a complex top (a congestion reversal, actually), the dollar index rolled over and was unable to escape the gravity of a yearly cycle low.

dollar index topping pattern

On a final note, take a look at the SLV chart:

silver trust volume reversals

Nothing wrong with that picture. When it comes down to it, I don't see anything in this market that negates my outlook for a big run in metals this spring. My guess is that all the nervousness among gold bugs is a product of leveraged positions... including too many options... and the fact that mining shares were hit particularly hard during the intermediate stock cycle decline. After so much shake 'n bake, I think it's about time we get things rolling.


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